Eliminating the Low-Income Housing Tax Credit: A Complex Program with Little Effectiveness

Strategic Insights -

As the U.S. grapples with rising housing costs and affordability issues, lawmakers are reevaluating existing programs aimed at helping low-income households. Congressman Glenn Grothman (R-WI), joined by Congressman Paul Gosar (R-AZ), has introduced the Low-Income Housing Tax Credit Elimination Act, a bill aimed at repealing the Low-Income Housing Tax Credit (LIHTC) program. This move is driven by criticisms that the program has enriched developers and banks at the expense of low-income Americans.

Key Takeaways:

  • The Low-Income Housing Tax Credit (LIHTC) program provides tax credits to developers to subsidize the construction and rehabilitation of affordable housing units, covering around 70% of a project's cost.
  • However, rather than benefiting tenants, the program has become a cash grab for developers and banks, with only 24% of the costs benefiting low-income households in the form of rent savings.
  • The elimination of LIHTC would save taxpayers $69.1 billion over a ten-year period, according to the Congressional Budget Office.
  • The program's complexity and incentives have given rise to a cartel-like ecosystem dominated by a few developers and nonprofits, who have profited handsomely while calling for even more subsidies.
  • Adam Michel, Director of Tax Policy Studies at the Cato Institute, stated that the Low-Income Housing Tax Credit is a textbook case of good intentions gone wrong, doing more for banks and developers than for struggling renters.
  • Edward Pinto and Tobias Peter, Co-Directors AEI Housing Center, noted that LIHTC developments often displace housing that the private market would have produced without subsidies, creating a crowding-out effect.

Statistics:

  • The LIHTC program provides tax credits to cover around 70% of a project's cost ($450,000 per unit on average).
  • Repealing LIHTC would save taxpayers $69.1 billion over a ten-year period, according to the Congressional Budget Office.
  • A 2009 study found that construction costs per square foot of LIHTC projects were 20 percent higher than for average industry projects.
  • A 2017 study found that tenants capture at most 24% of the LIHTC development subsidies.

Sources:

  • Adam Michel, Director of Tax Policy Studies at the Cato Institute
  • Edward Pinto and Tobias Peter, Co-Directors AEI Housing Center
  • Congressman Glenn Grothman (R-WI)
  • Congressman Paul Gosar (R-AZ)
  • United States House of Representatives
  • Congressional Budget Office